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Friday, November 9, 2012

Democracy and Over-Population in India: Foreign Direct Investment

How well can
the democratic form of governance serve as a means by which a society is
circumscribed, or restricted in some way? In other words, can self-government
be used to enact self-discipline on the body politic itself? Adding another
level to this question, can elected representatives be expected to go beyond fixes
that are perceived societally as
sufficient to redress the underlying causes of governmental, economic, or
societal problems? Far from urging or implying the supremacy of non-democratic
forms of government, such questions invite improvement in democracy itself. In
this essay, I reflect on these questions using India’s industrial policy as a
case study.

Faced with
economic growth below 6 percent, a budget deficit expected to breach 6 percent
of India’s GDP, a possible downgrade in the country’s credit rating to junk
status, and the rupee hitting record lows, Sonia Gandhi, head of the Congress
Party, spoke for the first time in late 2012 in support of allowing foreign
companies such as Wal-Mart into India. Prime Minister Manmohan Singh and others
had been urging her to embrace the reform. Appealing to Sonia Gandhi’s passion
for social welfare programs, the prime minister told her that more foreign
direct investment would be necessary to expand them. Most notably, the Congress
Party boss was pushing a $5.6-billion food-security bill and a rural
employment-guarantee program. According to the Wall Street Journal, there was already “high spending on subsidies”
at the expense of “growth-generating capital projects.” In effect, the latter
get “sub-contracted” in foreign direct investment.Relatedly, the finance minister, P.
Chidambaram, issued a plan to reduce the federal government’s deficit and sell
stakes the government has in state-owned companies.

Singh and Gandhi at a rally. It is clear who's the boss. AP

Lest Sonia
Gandhi’s support be viewed as a panacea, other reforms, such as making it
easier to acquire land, remained “stuck in the bureaucracy,” according to the Wall Street Journal. The government’s
“mind-set is I will not fix the cause of the issue, I will put a Band-Aid on
it,” Rahul Bahsin of Baring Private Equity Partners India said. Indeed,
although Walmart would doubtless hire local labor both in the construction and
retail-operations of the stores, that foreign-direct-investment alone would not
be large enough to make a dent in the social welfare needs of India’s poor.
Additionally, the company’s aversion to workers’ rights (not to mention unions)
and the related low compensation and benefits for in-store employees could mean
additional troubles for Sonia Gandhi as worker groups seek protection from the
federal government.

Moreover,
with over a billion people at the time the policy was being considered, the
prospect of employing all able-bodied people of working-age in India was
undoubtedly a daunting task in the midst of a global recession following the
financial crisis of 2008. It was not as though the Indian government could
simply invite hundreds of millions of Indians into computer-science and
engineering classes and then into high-tech ready-made jobs. Over-population
could have been the long-standing underlying problem, or cause of the unemployment
and related subsidies.

The
bureaucracy and coalition in-fighting, as well as the “Band-Aid” approach
oriented to incremental additions in employment through FDI could be a
reflection of India’s over-population—a more basic problem that eludes mere policy
prescriptions increasing foreign-direct-investment. Especially if a given over-populated area has a disproportionate
number of unemployed people, tackling the underlying problem could be expected
to relieve the pressure on policies such as foreign direct investment to make
up the difference. Meanwhile, other symptoms, like global warming and food
prices, would be redressed. The question may therefore be whether a democracy
is a feasible venue for such “cause-oriented” legislation to be enacted.

Whereas government
officials in China did not have to worry about a democratic backlash from the
government’s one-child policy in the late twentieth century, the case of India
raises the question of whether a self-governed people can regulate their own
society by democratic means. A democracy may be hard-pressed in putting into
effect painful legislation to curb excesses such as over-population—literally to
restrict rather than promote a basic sort of growth. The value put on that
value alone since the mercantile days could give legislators an implicit
mandate to foster rather than retard population growth. Furthermore, the “Band-Aid” approach might be
more in line with the workings of a democracy if apparent measures are sufficient to get one re-elected. One could
point to the perennial “fixes” in the U.S. regarding entitlement programs and
deficit-cutting as other examples, and to the efforts of the E.U. to bail-out
heavily indebted states as yet another example. Elected representatives seem to
prefer to take little bites, incrementally, rather than enact fundamental laws
that are oriented to causes rather than symptoms.

In contrast
to these questions, an uncritical approach to the spread of democracy around
the world, such as potentially in the “Arab Spring,” could actually exacerbate
global problems. If the species continues “un-self-regulated,” meaning more and
more over-populated, nature will undoubtedly step in at some point and impose
restraint (e.g., famine, climate, war, disease). It may be an open question
whether we as a species can stave off such a verdict from Mother Nature.
Ironically, our consensus form of government may lessen the odds.